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AET Breakout Entry Signals Technical Analysis
Intermediate-Term Technical Analysis
Moving Average Convergence/Divergence (MACD) indicates a Bearish Trend. Chart pattern indicates a Strong Downward Trend. Relative Strength is Neutral. Up/Down volume pattern indicates that the stock is under Distribution. The 50 day Moving Average is rising which is Bullish. The 200 day Moving Average is rising which is Bullish. Price is above Support of 50.02 which is Bullish. Watch for resistance at 51.67
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Company Business Summary(Standard&Poor's)
CORPORATE OVERVIEW. In December 2000, Aetna sold its financial services and international operations for $5 billion ($35.33 a share, not adjusted) and the assumption of $2.7 billion of debt. AET shareholders received $35.33 a share in cash, plus one share of a new health care company named Aetna. Revenue contributions (excluding net investment and other income) from the company's business operations in 2006 were: Health Care 89%; Group Insurance 8%; and Large Case Pensions 3%. The Health Care segment offers health maintenance organization (HMO), point-of-service (POS), preferred provider organization (PPO) and indemnity benefit products. The company had total health care enrollment of 15,703,000 lives at March 31, 2007, up from 15,433,000 at December 31, 2006. Commercial risk enrollment was 5,179,000 lives, versus 5,088,000, while commercial administrative services (for self-funded accounts) was 10,172,000 lives, versus 10,053,000. Medicare enrollment was 194,000 lives, versus 140,000, while Medicaid enrollment was 152,000 lives, versus 114,000. The company also provided dental benefits to 13,655,000 members, versus 13,472,000. Group Insurance provides group life, disability and long-term care products; membership was 15,087,000 at December 31, 2006, up from 13,618,000 at December 31, 2005. Large Case Pensions manages various retirement products, including pension and annuity products, for defined benefit and defined contribution plans. Aetna has not marketed its Large Case Pension products since 1993, but continues to manage the run-off of existing business. At December 31, 2006, assets under management totaled $24.0 billion, up from $21.0 billion at December 31, 2005.
MARKET PROFILE. According to the U.S. Census Bureau, 247 million
people, or 84.1% of Americans, had health insurance coverage as of March
31, 2006. Managed care enrollment as of year-end 2005 was 208 million,
with the commercial sector accounting for 86% of members, Medicare 3%,
and Medicaid 11%, according to Atlantic Information Services (AIS).We
believe that managed care still has good growth prospects among the
uninsured, Medicare and Medicaid populations. As of December 2006, 19%
of 43 million elderly and disabled Medicare beneficiaries were in
managed care, according to the Kaiser Family Foundation, and as of
December 2005 (latest available), 64% of 45.7 million Medicaid
beneficiaries were in
managed care, according to the Centers for Medicare and Medicaid Services.
COMPETITIVE LANDSCAPE. With 364 for-profit and not-for-profit organizations operating in the U.S. at year-end 2006, according to AIS, the health plan market is fragmented. AET, ranked third in enrollment at that time, generally competes against large, for-profit managed care organizations, as well as against local Blue Cross Blue Shield affiliated health plans, locally owned plans and provider-sponsored plans. We
believe that AET's competitive strengths include its broad and expanding array of products and services and comprehensive coverage.
FINANCIAL TRENDS. Reacting to disappointing results in its Health Care segment in 2002, AET has been involved
in a number of strategic and operational initiatives. From 2003 to 2006, health plan enrollment grew from 13.0 million members to 15.4 million, operating revenue grew from $16.8 billion to over $23.9 billion, and operating EPS, adjusted for stock splits and absent prior-year claims reserve development, surged from $1.30 to $2.87.We believe that the surge in operating cash flow from $371 million in 2003 to $1.6 billion
in 2006 best reflects AET's turnaround. Reflecting what we see as a strong focus on cost control, Health Care's SG&A cost ratio declined from 24.8% in 2003 to 19.8% in 2006. The medical cost ratio (MCR) grew from 78.3% in 2003 to 80.0% in 2006, before prior-year claims reserve development, as the impact from competition, a less-favorable commercial revenue mix, and higher Medicare Advantage enrollment outweighed disciplined pricing and the moderation of medical cost inflation. Regarding 2006, AET also pointed to a large government case and its stoploss product, which were affected by higher-than-expected large claims, and to competitive pressure in the small group market. AET expects a higher MCR in 2007, partly on its targeting of government employee and labor union markets, which carry high MCRs.